Law v. Sri Ramakrushna Mills 1493

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 04.10.2007 THE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIAN THE HONOURABLE MRS.JUSTICE CHITRA VENKATARAMAN Tax Case (Appeal) No.372 of 2004 Commissioner of Income-taxCoimbatore.... AppellantVs.Sri Ramakrishna Mills (Coimbatore)LimitedCoimbatore....Respondent. Tax Case Appeal No.372 of 2007 is filed under Section 260-A ofthe Income-tax Act, 1961 against the orders of the Income-taxAppellate Tribunal, 'C' Bench, Chennai made in I.T.A.No.2828/Mds/93for the assessment year 1990-91 against the order of Commissionerof Income Tax (Appeals) Coimbatore dt. 23.8.93 in ITA No.61-C/93-94arising out of the Assessment Order of Deputy Commissinoer ofIncome Tax Special Range-I, Coimbatore, dt.4.3.93 in PAN/GIR. NQ:CN-9948/SR.I/CBE.For Appellant : Mrs.Pushya Sitaraman Sr.Standing Counsel for Income-tax.For Respondent : Mr.Venkata Narayanan for Mr.Subbaraya Aiyar JUDGMENT The revenue has filed appeal against the order of the Income-tax Appellate Tribunal in I.T.A.No.2828/Mds/93 for the assessmentyear 1990-91. 2. The relevant assessment year is 1990-91. The material factsculminated in filing of the appeal are as follows: The assessee is a company in which the public are notsubstantially interested. For the relevant assessment year, thehttps://hcservices.ecourts.gov.in/hcservices/ assessee filed a return of income on 31.12.1990. While completingthe assessment, the assessing officer disallowed certain claims,including adjustment of book profit liability under Section 115J ofthe Income-tax Act as unabsorbed depreciation. The assessingofficer further held that while computing the deduction underSection 80HHC, excise duty, sales tax and scrap sales should beincluded and thus passed assessment order. 3. The assessee carried the matter on appeal to theCommissioner of Income-tax (Appeals), who inter alia held thatcomputation of book profit is done under the extra ordinaryprovisions of Section 115J of the Act and it does not in any manneraffect the computation of loss or depreciation of investmentallowance, otherwise carried forward under the normal provisions ofthe Act. On further appeal to the Tribunal, the Tribunal held thatthe issue regarding carry forward loss and allowances when theincome was assessed under Section 115J in favour of the assessee.Regarding the deduction under Section 80HHC, the Tribunal held thatthe excise duty and sales tax should not be included in theturnover for the purpose of calculating the benefit under Section80HHC. The correctness of the order of the Tribunal is canvassed inthis appeal. 4. The appeal is admitted on the following questions of law: "1. Whether in the facts and circumstances of the case,the Tribunal was right in holding that depreciation andother allowances to be carried forward in a case where bookprofits had been subject to tax is to be separatelydetermined taking into account the profit assessed underSection 115J of the Act? 2. Whether on the facts and in the circumstances of thecase, the Income Tax Appellate Tribunal was right in law inholding that Sales Tax and Excise Duty should not beincluded in the total turnover for the purpose ofcomputation of deduction under Section 80HHC of the IncomeTax Act? 5. Heard the learned counsel on either side and perusedthe material on record. It is submitted that in respect of thefirst question of law that the issue is covered in favour of therevenue by the decision of this Court rendered on 19.11.2001 in thecase of COMMISSIONER OF INCOME TAX VS. FAB EXPORTS (P.) LIMITEDreported in (2002) 258 ITR 56. In the said decision, this Courthas held that the plain words of Section 115J(2) are that thedetermination of the amount in relation to the previous year to becarried forward to the subsequent year under the provisionsreferred to therein shall not be affected by anything contained inhttps://hcservices.ecourts.gov.in/hcservices/ 5. Heard the learned counsel on either side and perusedthe material on record. It is submitted that in respect of thefirst question of law that the issue is covered in favour of therevenue by the decision of this Court rendered on 19.11.2001 in thecase of COMMISSIONER OF INCOME TAX VS. FAB EXPORTS (P.) LIMITEDreported in (2002) 258 ITR 56. In the said decision, this Courthas held that the plain words of Section 115J(2) are that thedetermination of the amount in relation to the previous year to becarried forward to the subsequent year under the provisionsreferred to therein shall not be affected by anything contained inhttps://hcservices.ecourts.gov.in/hcservices/ sub-section (1). Those words are clear enough. The fact that a partof the income, which was set off against the carried forward lossand depreciation even when, as a result of such set off, was notavailable for being taxed, was nevertheless deemed to be availablefor taxation to the extent of thirty percent, of the book profit,could not therefore result in the assessee becoming entitled tocarry forward the extent of the loss which could not be utilisedfor reducing the burden of taxation by setting off the same againstthe profits being carried forward to a succeeding assessment yearor years. 6. Subsequent to that, the Supreme Court also in a decisionrendered on 3.12.2002 in the case of KARNATAKA SMALL SCALEINDUSTRIES DEVELOPMENT CORPORATION LIMTIED VS. COMMISSIONER OFINCOME-TAX reported in (2002) 258 ITR 771, after referring to otherprovisions such as Sections 28 to 43, 32(2), 32A(3), 72(1)(ii),72A, 73, 74, 74A(3) and 80J, ultimately held that Section 115J(2)does is to preserve this right viz., to carry forward the balanceof the unabsorbed deductions in the relevant previous year to thenext year. Section 115J allows only the unabsorbed losses,depreciation, investment allowance, etc., which could otherwisehave been carried forward, to be carried forward. The allowancesneed not have been quantified under sub-section (1) of Section 115Jto be carried forward under sub-section (2). 7. In the light of the ruling of this Court and that of theSupreme Court stated above, the first question of law is answeredin favour of the revenue. 8. The second question of law has been decided by the SupremeCourt against the revenue in the case of COMMISSIONER OF INCOMETAX VS. LAKSHMI MACHINE WORKS reported in 290 ITR 667 by sayingthat Section 80HHC of the Income-tax Act, 1961 is a beneficialsection. It was intended to provide incentive profits relatable toexports. Just as commission received by the assessee is relatableto exports and yet it cannot form part of "turnover" for thepurposes of Section 80HHC, excise duty and sales tax also cannotform part of "turnover". Just as interest, commission, etc., do notemanate from the "turnover" so also excise duty and sales tax donot emanate from such "turnover". Since excise duty and sales taxdid not involve any such turnover, such taxes had to be excluded.Commission, interest, rent, etc., do yield profits, but they do notpartake of the character of turnover and therefore they are notincludible in the "total turnover". If so, excise duty and salestax also cannot form part of the "total turnover" under Section80HHC(3). 9. Therefore, in the light of the decision of the Supremehttps://hcservices.ecourts.gov.in/hcservices/ Court, the second question of law has to be necessarily decidedagainst the revenue and the same is decided against the revenue.Hence, the appeal is disposed of as stated above. Sd/Asst.Registrar/true copy/Sub Asst.RegistraruskTo1. The Asst.Registrar,Income-tax Appellate TribunalMadras "C" Bench, Sashtri Bhavan, Rajaji Salai,Chennai-34.2. The Commissioner of Income-tax(Appeals), Coimbatore,3. The Deputy Commissioner ofSpecial Range I, Coimbatore.+1cc to Mr.N.Muralikumaran, Advocate Sr 61781GG(CO)km/22.10.Tax Case (Appeal) Nos.372 of 2004